ITU workshop on Taxation of Telecommunications Services
and Related Products
ITU Headquarters, Geneva, Switzerland
1-2 September 2011
Session 1: Telecommunications service taxation:
Understanding the process
Martin Cave
London School of Economics
Martin.e.Cave@btinternet.com
Two quotations
• Benjamin Franklin: “In this world, nothing
can be said to be certain, except death
and taxes.”
• Jean Baptiste Colbert : “The art of taxation
consists in so plucking the goose as to
obtain the largest possible amount of
feathers with the smallest possible amount
of hissing.”
This session’s goals
• To outline the types of telecommunications
taxes
• To show the variation in tax rates
• To set out some issues in the effects of tax
and the evaluation of tax policy
Forms of taxation
• Standard taxes on all goods and services
– such as VAT; these would normally
cover all forms of expenditure on telecoms
services and equipment
• A special additional fixed or percentage
tax on all telecoms services
• A special tax paid to begin service – eg to
open up a SIM card
Forms of taxation (cont.)
• A special tax on handsets or devices
• A customs tax on the import of handsets
or telecommunications equipment
• [Payments by operators into a universal
service fund which is not spent tom
subsidise telecommunication services]
• [Excessive charges for access to service
or spectrum licences]
How much tax is paid?
• The best metric seems to be calculation of
total identifiable tax payments as part of
the total cost of ownership (TCO) of a –
normally- mobile phone
• Internationally comparable data have been
computed
• One set shows significant inter-country
and inter –regional differences in 2006
(new data are in preparation)
Tax rates and mobile penetration
Data source: Wireless Intelligence
Note that many other factors than tax affect penetration of mobiles
Telecoms role in the tax base
• The modern expenditure tax orthodoxy is to
have one or two standard rates on most goods,
together with a few higher luxury or ‘sin’ tax
rates.
• This may appear to imply no special telecoms
taxes.
• However, there are two additional
considerations:
- the cost of collection issue
- a possible special role for telecoms in economic
growth
Factors determining the form of taxes I
• Distribution: who pays the tax – rich or poor?
When mobile diffusion is 100%, almost
everyone pays; before then the better off pay,
but others benefit by receiving calls. There is
also the question of whether the firm is
domestically or foreign-owned
• Tax production or tax consumption? Tecoms
service are used in both. High taxes on
productive inputs are bad for business
development and efficiency.
Factors determining the form of taxes II
• The cost of collection: taxes differ in the ease
with which they can be collected. Many taxes
are very difficult to collect: this reduces the
tax take and leads to evasion and avoidance.
Taxes imposed by large telecoms firms are
acknowledged as being relatively easy to
collect.
Factors determining the form of taxes III
• The incidence of the tax: it is usually assumed
that the tax will fall on the consumer. But in
some cases the firm will ‘subsidise’ the tax – ie
pay part of it itself.
This sounds a good outcome, but not if it
enhanced competition among firms following
from the tax rise pushes the firms into loss and
stifles investment.
At the opposite end, firms may increase their
pre-tax price when a taxis imposed, but this is
not likely.
Factors determining the form of taxes IV
• Efficiency of taxes: taxes impose an extra or
‘excess’ burden on an economy if they
significantly curtail a valuable activity.
Consumers substitute other forms of
spending for the taxed item, and revenue is
reduced. It is thus best to tax items the
demand for which does respond to price.
Where do telecoms services stand compared
with other goods and services? It is not clear
The place of telecoms taxes in the
tax base
• The modern orthodoxy on expenditure taxes
favours one or possibly two ‘standard’ VAT
rates, combined with higher luxury and ‘sin’ tax
rates.
• This might argue against exceptional treatment
for telecoms services, but there two special
factors:
- the cost of collection issue (noted above),
- a special role for telecoms in economic development
(for later consideration).